FIRM DYNAMICS IN AN URBAN ECONOMY *. (November 2015)

• Record Type: Journal Article
• Authors: Brinkman, Jeffrey; Coen‐Pirani, Daniele; Sieg, Holger
• Is Part Of: International economic review. Volume 56:Number 4(2015:Nov.)
• Page Start: 1135
• Page End: 1164
• Publication Date: 2015-11
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/iere.12133
• Languages: English
• ISSNs: 0020-6598

Abstract

Abstract : We develop a new dynamic general equilibrium model to explain firm entry, exit, and relocation decisions in an urban economy with multiple locations and agglomeration externalities. We characterize the stationary distribution of firms that arises in equilibrium. We estimate the parameters of the model using a method of moments estimator. Using unique panel data collected by Dun and Bradstreet, we find that agglomeration externalities increase the productivity of firms by up to 8%. Economic policies that subsidize firm relocations to the central business district increase agglomeration externalities in that area. They also increase economic welfare in the economy.